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San Jose Company operates a Manufacturing Division and an Assembly Division. Both divisions are evaluated as profit centers. Assembly buys components from Manufacturing and assembles
San Jose Company operates a Manufacturing Division and an Assembly Division. Both divisions are evaluated as profit centers. Assembly buys components from Manufacturing and assembles them for sale. Manufacturing sells many components to third parties in addition to Assembly. Selected data from the two operations follow. Manufacturing 404,000 $ 408 Assembly 204,000 $ 1,320 Capacity (units) Sales pricea Variable costsb Fixed costs $ 180 $ 488 $24,040,000 $40,040,000 a For Manufacturing, this is the price to third parties. b For Assembly, this does not include the transfer price paid to Manufacturing. Suppose Manufacturing is located in Country A with a tax rate of 80 percent and Assembly in Country B with a tax rate of 20 percent. All other facts remain the same. Required: a. Current production levels in Manufacturing are 204,000 units. Assembly requests an additional 44,000 units to produce a special order. What transfer price would you recommend? b. Suppose Manufacturing is operating at full capacity. What transfer price would you recommend? c. Suppose Manufacturing is operating at 382,000 units. What transfer price would you recommend? (Round your answer to 2 decimal places.) a. . $ 180 per unit b. Optimal transfer price Transfer price Transfer price $ 408 per unit $ 258.00 per unit C
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